Many large corporations today are sitting on excess cash following last year's economic upswing. With limited investment opportunities, some businesses are employing these liquidity resources to realign their operating structures and grow by acquisition. These same companies are realigning their banking strategies and relationships as a result.
M&A transactions continue to challenge the construct of bank/corporate relationships, and beg the need for consolidation. Limiting banking relationships to three or four "superhouses" that can offer a single banking platform on a global scale is often a good business strategy.
Paring down and effectively structuring banking relationships following corporate mergers is complicated, however. Transition teams must delicately weigh an array of issues involving personnel, technology systems and capabilities, timelines and external pressures to streamline. Those that get it right are the corporations that not only achieve short-term savings through reduced operating costs, but also realize the longer-term benefits of new or improved processes and technologies.
Consolidation No Easy Task
The more sophisticated and diverse the merging businesses and their banking relationship structures are, the more challenging it is to consolidate. Board members who are aggressive in their desire to share happy stories of a successful acquisition complicate issues even further.
Additionally, managing people through a merger requires a delicate touch. Downsizing is inevitable and tough choices must be made. This is where the acquiring company's board often steps in to help manage this process for Treasury. While cost savings are the short-term benefit of downsizing, a lean, homogenous group structure is the long-term benefit companies should aim to achieve.
Making quick fixes to ensure cash flow streams aren't interrupted—e.g., assigning an overlay banking structure and concentrated global cash pool to maximize cash resources—is of obvious, immediate concern. But don't let it overshadow the need to focus on long-term strategies. In the near term, avoid drastic, swift changes and maintain an analytical eye toward the future so that you're not just assimilating structures, but improving them.
Reap the Benefits
Spreading a company's banking relationships among fewer providers allows you to leverage the firm's aggregated balances to make fewer net transactions and receive volume pricing, additional customization, and simplified reporting and administration.
Furthermore, companies can save on liquidity-related costs, infrastructure and people once they're no longer operating two Treasury units or duplicate technology systems. The net result is a more efficient and controlled finance unit, which properly aligns with Sarbanes-Oxley mandates.
Consolidating technologies and operating systems is perhaps the most time-absorbing task of all merger-related activity, but it also can be the most rewarding. Companies can maintain separate operating systems for years, but that incurs significant costs.
Seek Long-Term Goals
Companies must be cautious when changing key structures such as operating systems and shared service centers—as you don't want to disturb daily operations.
This is where working with an established bank partner committed to seeing you through the transition and beyond is beneficial.
What's critical at this point is that there's a clear mandate from senior management to empower the transition team, consisting of IT, Treasury, Accounting/Control and Tax, to suggest some drastic, carefully planned changes.
At Deutsche Bank, we often see companies, even large ones, look for shortcuts when consolidating. They simply ask their domestic bank to assimilate all their accounts without strategically renegotiating pricing or technology requirements. In contrast, we encourage fresh, clear thinking. Use this opportunity to achieve new efficiencies and positively impact your bottom line.
A fresh approach might require issuing a request for proposal (RFP). If you go this route, think about which systems, licensing arrangements, etc., you want to retire or retain. Minimize the number of bank accounts and related complications to create a truly consolidated structure, not just on the banking side, but internally, as well.
At the end of the day, what drives your consolidation timeline should be a combination of short- and long-term strategies that will resolve liquidity, cost and people concerns initially, and build efficiencies through a systems/technology revolution over the long term.
